UK petrol and diesel prices: fuel should be £2 a tank cheaper

Motorists should be paying almost £2 less for a tank of petrol and diesel, but retailers have not lowered their prices to reflect falling wholesale costs, according to a new report.

Oil prices are down by 11 per cent compared to the start of October, while wholesale petrol prices for petrol have fallen by 3.5 pence-per-litre. But the average cost of a litre of unleaded was the same at the start of the month and the end, leading one motoring group to accuse retailers of having “taken drivers for a ride”.

With the average cost of a litre of unleaded standing firmly at 130.6pence per litre, the average price of filling a 55-litre family car with petrol is £71.84. The RAC – whose Fuel Watch service produced the analysis – says this should have decreased by £1.92 to reflect falling wholesale prices.

So while last week’s budget may have seen fuel duty frozen for the ninth consecutive year, motorists are still paying over the odds for petrol and diesel.

Finally, Williams called for retailers to drop their prices by around 3p, adding: “We strongly urge all retailers to lower their petrol prices in line with the reduced wholesale cost of unleaded; and, with the pound gaining strength against the dollar on November 1, there will be even greater scope for a cut.”

What makes up the price of UK fuel?

The price of fuel can be divided into three sections; the taxes imposed by the Government, the costs of drilling, refining and transporting, and the profit margins for the fuel companies.

For petrol, diesel and bioethanols, the Government gets around 65 per cent of the overall cost through fuel duty and value added tax (VAT). The fuel duty represents the fixed price of fuel – it stays the same regardless how much overall oil prices fluctuate. Currently, the Treasury adds 57.95 pence to each litre of fuel through fuel duty, and another 20 per cent through VAT. How much you pay in VAT depends on how much fuel you purchase.

The second biggest chunk comes from the wholesale costs of the fuel itself. The wholesale cost is a combination of currency exchange rates, global oil prices, and even domestic supply and demand.

Why is supermarket fuel cheaper than an independent forecourt?

Supermarket forecourts usually offer the cheapest fuel prices and this is because of the market power supermarkets hold. Companies like Asda, Tesco, Sainsbury’s and Morrisons are all in competition with one another, so they keep fuel prices as low as possible hoping that when motorists come to fill their tank, they might do their weekly grocery shopping, too.

However, the AA’s Fuel Price Report found that supermarket prices are getting closer and closer to prices on independent forecourts. The price gap between the Big-Four (Tesco, Asda, Sainsbury’s and Morrisons) and non-supermarket rivals has fallen below 3ppl for the first time in 12 months.

There are persistent rumours that supermarket fuel contains fewer additives and is of lesser quality than fuel from traditional forecourts, but there’s little hard evidence of this. All fuel sold in the UK has to abide by the standards set in the Motor Fuel Regulation.